Alternative Investments - Alternative Investments Section 1
21. Which of the following is least likely a form of real estate investment?
- Option : C
- Explanation : Leveraged buyouts are highly leveraged transactions where private equity firms establish buyout funds to acquire public companies or established private companies with significant proportion of the purchase price financed through debt. It is a form of private equity investment rather than real estate investment. Securitization of retail and commercial mortgages such as in mortgage-backed securities and real estate limited partnerships are forms of real estate investment.
23. Which of the following is least likely a method for investing in commodities?
24. Which of the following is least likely a private equity strategy?
- Option : C
- Explanation : Buyout funds and venture capital (VC) funds are collectively referred to as private equity
- Option : B
- Explanation : Since the futures price is less than the spot price, the market is in backwardation. The convenience yield must be more than the cost of carry to arrive at a futures price below the spot price because the futures price is approximately equal to: spot price * (1 + r) + storage cost – convenience yield. The cost of carry is defined as interest cost plus storage cost. When the market is backwardation the roll yield for the long party is positive.
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